UNPAID LAW INTERNSHIPS – ARE THEY LEGAL UNDER THE FAIR WORK REGIME?

How prevalent are unpaid internships in the legal industry?

It was commonly believed unpaid internships were not a problem in the legal industry. Law students either completed paid clerkships or did volunteer placements at not-for-profits like community legal centres. Unpaid internships were not believed to be common or necessary because most large corporate law firms offer paid summer clerkships and paid paralegal positions to students.

Andrew Stewart and Rosemary Owens debunked this belief in their 2013 Report for the Fair Work Ombudsman on the nature and regulation of unpaid work experience in Australia. Stewart and Owens conducted a survey of final year students across universities in Australia and found over half had done unpaid work (not volunteering) since leaving high school, predominantly for law firms, but to a lesser extent barristers. The pattern identified by Stewart and Owens was that the students who missed out on paid clerkships and paid paralegal jobs were more likely to take these unpaid positions. The motivation for doing the unpaid work was predominantly to get legal experience with an eye to obtaining paid employment.  

There has been a proliferation of international students studying law at Australian universities with the widespread introduction of Juris Doctor courses. International students may particularly be at risk of undertaking unpaid internships, as if they wish to obtain permanent residency they need to satisfy certain work requirements. Unpaid work experience can count towards that. If over 50% of law students are undertaking unpaid internships or jobs at some point during their degree, unpaid law internships appear to be prevalent in the legal industry. So when are unpaid internships legal?

An unpaid internship is legal if it can be classified as a skills demonstration

Employers are able to subject a potential employee to an unpaid skills demonstration. To be legal, the unpaid skills demonstration must:

1.       Involve no more than a demonstration of skills relevant to the position;

2.       Only be for as long as needed to demonstrate the skill. This could range from one hour to one shift; and

3.       Must be under direct supervision of the employer.

These types of skills tests are common in the food and services industries. I thought they would not be prevalent in the legal profession. However, the Fair Work Ombudsman has recently investigated a number of purported “skills demonstrations” in the legal industry. One FWO case involved two law graduates who completed a week of unpaid work at a law firm and were told they were competing against each other for a paid position. At the end of the week one graduate was told to go and the other was offered another unpaid trial. After the graduates complained to the FWO and the FWO indicated this was not a valid skills demonstration, the graduates were paid for the time they spent working at the law firm.

Unpaid internships are legal if they are a vocational placement

The combined effect of sections 13, 15(1)(b), 30C(1)(a) and 30M(1)(a) of the Fair Work Act 2009 (Cth) is that a vocational placement is not an employment relationship. To be a vocational placement, the three items in section 12 must all be satisfied:

1.       No entitlement to paid remuneration

The intern must not be entitled to any remuneration. It is clear from prior Workplace Relations Act 1996 case law that remuneration has a broader meaning than “wages”. The case of Oliveri v Australian Industrial Relations Commission (2005) 145 IR 120 is authority that wages will include any “recompense or reward for services rendered” including “non-cash benefits” (at [25]–[26]). Reimbursements for expenses incurred are not considered to be remuneration (Bell v McArthur Riving Mining Pty Ltd (1998) 81 IR 436 at 449).

2.       Undertaken as a requirement of an education or training course

The term “course” is ambiguous and has not been tested by case law. If it is a requirement of a compulsory subject that would suffice, but what about if it is a requirement of an elective? One construction could be that once the student has chosen the elective then the internship/work experience becomes a requirement.

3.       Authorised under a law or an administrative arrangement of the Commonwealth, a State or a Territory.

Authorised courses include those offered by universities, TAFE and schools.

If the three criteria are satisfied, it will be a vocational placement and the placement host will not be required to pay the intern. However, a placement host can choose to pay the student though if they wish.

There is little case law on vocational placements. In Corner v SkyCity Adelaide Pty Ltd [2010] FWA 9259 in unfair dismissal proceedings, Senior Deputy President O’Callaghan had to determine whether an unpaid 5 week training course in Blackjack dealing which was followed by a guaranteed permanent part-time position at Sky City Adelaide was an employment relationship. It was held the 5 week training course was a “vocational placement” as the staff member had not been paid for it and it was part of a training course. The third requirement that the training course be “authorised” was not discussed.

If an element in section 12 is not satisfied, it means your placement is not considered a “vocational placement”. It does not automatically mean you are an employee entitled to pay.

Are PLT placements vocational placements?

To be admitted, law graduates must complete a Graduate Diploma of Legal Practice. Part of the course requirements is a legal placement known as Practical Legal Training. Some law graduates complete their PLT by using hours accrued working in their paid graduate position. Others undertake voluntary placements to complete their PLT. These voluntary placements appear at first glance to be vocational placements. The GDLP is a course offered by authorised providers such as the Australian National University or College of Law. If the placement was unpaid, it would appear to be a vocational placement.

However, all three elements in s12 of the Fair Work Act 2009 (Cth) focus on the word “placement” indicating there must be some process or procedure for the placing of individuals. This could mean that not all PLT experience comes under the definition of a vocational placement, particularly if the student arranges their own PLT and applies for subsequent recognition for their GDLP. Where the educational institutions take an active role in placing students, it would more likely come under the definition of a vocational placement.

An unpaid internship is legal if it is not an employment relationship

This section applies to traditional unpaid internships. You are not doing the internship for course credit. Perhaps you have finished your degree and are trying to get some experience. Maybe you missed out on a paid clerkship position and are doing an unpaid internship to enhance your chances of getting a graduate job. These unpaid positions are legal as long as they do not fit the characteristics of an employment relationship under the Fair Work regime. To be an employment relationship there must be:

1.       An enforceable contract; and

2.       The contract must be a contract of employment.

Is there an enforceable contract?

General contract principles apply. Ask yourself if there is agreement, intention to create legal relations, whether consideration is provided by both parties and whether the terms are certain and complete. You should also be aware that when approaching employment contracts, courts look to the real interactions between parties as opposed to relying solely on the words of the contract due to the potential imbalance in bargaining power between employer and employee. In the Federal Court case of On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) (2011) 279 ALR 341 Justice Bromberg stated that the focus should be on “the substance or reality” of the relationship (at [189]–[200]).

Those trying to argue an internship involves an employment contract will often fall down on one of the following:

1.       Intention to create legal relations

There must be evidence to show a reasonable person would infer that the parties intended to create legal relations. Cases often fail as it can be hard to establish this intention;

2.       Consideration

A reasonable person must be able to infer the parties intended to create legal relations. There is some uncertainty about what is good consideration in the employment law context (discussed below); and

3.       Mutuality of obligation

There must be a commitment by the worker to perform work in return for whatever experience or benefits the employer offers.

I will not explore these concepts in depth, but do have some comments on consideration in the employment law context. Consideration in an employment contract does not have to be wages. In Cudgegong Soaring Pty Ltd v Harris (1996) 13 NSWCCR 92 provision of rent free accommodation to a live in caretaker and instructor at a flying club was sufficient consideration. Another example is Re McGee (1992) 41 IR 27 where being given a slab of beer in return for work was sufficient to satisfy the employer’s consideration requirements. It appears courts are willing to stretch the concept of consideration in employment law contexts. But how far?

There is UK authority in the case of Edmonds v Lawson [2000] 2 WLR 1091 that the provision of work experience itself would be sufficient consideration to support an employment contract. In Edmonds, a barristers chambers was providing education and training to a pupil. This was said to constitute good consideration for an employment contract even though the pupil was unpaid:

“there is no reason in principle why the requirement for consideration in an employment contract could not be satisfied by the provision of training or experience, or an opportunity to make contacts or to practise skills, in return for the performance of whatever kind of work or service the employer may bargain to obtain.”

It is yet to be seen if Australian courts will follow the UK approach.

Is there an employment relationship?

If it can be established an enforceable contract exists, the next step is to establish whether the contract concerned is one of employment. The key issue for unpaid internship situations is usually the threshold one of whether a contract exists at all. However, I will discuss briefly how to determine if it is an employment relationship.

While the Fair Work Act 2009 (Cth) regulates employment, it does not define “employer” and “employee”, though it relies on this distinction. It was assumed that courts would determing the meaning of employment. The old Industrial Relations Act 1988 and the Workplace Relations Act 1996 regimes also left the definition of “employee” to common law. This article does not attempt to go into the case law in detail. The test is ultimately a multiple indicia test and courts will look at all factors to determine if the relationship can be characterised as employment. In the case of internships, key factors to look at include:

1.       The reason for the arrangement

Is the provider giving the intern work experience or are they getting the intern to help with the ordinary operation of the business. If you are mainly observing, such as following a solicitor to court, to meetings and mediations, this would indicate you are not an employee, whereas if you are being productive and producing billable work most of the time this would be an indicator of employment.

2.       Length of time

The longer the internship lasts, the more likely it is an employment relationship.

3.       Significance to the business

Is the work you are doing as an intern normally done by paid employees? Does the organisation need this work to be done? If so, this would be an indicia of employment.

4.       Type of work

An intern might do some productive activities. If the intern is expected or required to come to work to do productive things then this indicates an employment relationship.

5.       Benefit

The unpaid intern should be getting the main benefit of the placement through learning and experience. If the host is obtaining the most benefit it is more likely to be an employment relationship.

An example of when an internship should be paid:

John is a final year law student. He agreed to do an unpaid internship at a law firm and was promised a job after he finishes his degree. John attended the law firm 3 days a week where he prepared court documents, proof read and drafted advices, and prepared annexures for affidavits. The law firm charged clients for the work John did. Although there was an agreement not to be paid, John did work that a paid employee would otherwise have done, indicating an employment relationship existed. John should be paid for all hours he worked.

Conclusion

Unpaid internships are legal in a number of circumstances. Your unpaid internship will not be legal where:

a.       An employment relationship and employment contract is found to exist; and

b.      You are working for an employer that qualifies as a national system employer; and

c.       The work does not fall within the vocational placement or skills demonstration exception.

If you have completed an unpaid internship that was not legal and was in fact an employment relationship, there will be several possible consequences. Your employer will be obliged to pay you for the work at the minimum wage set by the applicable award or enterprise agreement. The most likely award to apply is the Legal Services Award 2010. However, as identified, there are several grey areas in the law, and while certain unpaid internships may be found to involve employment relationships, it can be difficult to establish. The most important thing is to be aware of your rights, so you can have a positive experience in your internship and move on to paid legal work as soon as possible.

Disclaimer: while I discuss the law in this article, it is not legal advice. If you think you have been exploited in an unpaid internship or believe you are owed money, you should contact the Fair Work Ombudsman or seek independent legal advice.